Monday, July 04, 2016

Brexit : the EU and Britain will work this out, but don’t hold your breath

Last
week’s vote in Britain to leave the EU truly shocked Brussels. Whereas many had
anticipated a narrow win for "remain", as indicated by some opinion
polls, not so many had realised that "narrow" also meant the “Brexit”
- camp could win.

A
whole range of reactions followed. While the six Foreign Ministers of EU
"founding states" and EU Commission President Juncker sent out
hostile messages, German Chancellor Angela Merkel was more concilliatory, warning
there is "no need to be nasty" to the UK.

At
this week’s EU Summit, EU leaders stated
that “access to the single market requires acceptance of all four freedoms,
including the freedom of movement”, which really should be seen more of a
negotiation statement rather than a prediction. They also granted some time for
the UK to figure out who’ll become PM. After that, some kind of official
negotiation is due to start.

It’s
still not certain that the UK will opt to use the EU procedure for member
states to leave the Union, which is layed down in article50
of the EU Treaty. The UK may be frightened by the prospect that not only ultra-federalist
MEPs have a veto over this, but also that the EU controls the timetable in this
procedure. This because from the moment it is triggered, a period of two years
starts, after which Britain automatically leaves the EU. This two-year period
can however be prolonged, with the consent of each member state, which is
likely, given that tariffs on UK exports which would be swiftly followed by
tariffs on German or Benelux imports into the UK isn’t something the likes
of Germany are looking forward to. A lot of jobs would swiftly be lost, for
example in the German car manufacturing industry.

On
Thursday, a bombshell hit UK politics, with the announcement of former
Conservative London Mayor Boris Johnson, the most prominent campaigner for
Brexit, that he wouldn’t be running to become PM. The consequences of this
aren’t entirely clear yet. That Theresa May, who now looks to be the favorite to
succeed David Cameron, has campaigned for “remain”, may make a deal between
Britain and the EU perhaps a bit easier.

Any
UK government is likely to demand restrictions on freedom of movement and
market access to the EU at the same time. Given that nobody is ready for a
trade war, some deal should be feasibly at some point, although there may be
restrictions for Britain’s financial services, as much as this would also hit
investment on the Continent. It’s not so intelligent to cut of one’s financial
bloodline, but Continental politicans have proven in the past to sometimes opt
for politics over economics, even at great cost. The EU will at some point also
need to close a deal with Switzerland on freedom of movement, given that the
Swiss people have demanded this in a referendum in 2014. So far, Brussels has
refused to negotiate over this, but when the Swiss are joined in their demand
by the British, the EU may like to offer some kind of solution which could be
applied to both, especially when the stakes are so high, given the size of
trade between the UK and the EU.

Many in Britain are currently requesting a deal
similar to the one Norway enjoys, which includes automatic access to the
European Economic Area (EEA). When it will sink in that this
means taking over a lot of EU rules automatically, which effectively
reduces Parliament’s sovereignty as compared to now, while remaining under the
jurisdiction of the EU’s Court of Justice in Luxembourg, it can be expected
that the preferred solution will be to close a bilateral Free Trade Agreement
(FTA). This however can take years. Seven years, according to EU Council
President Donald Tusk. This means Britain is unlikely to leave the EU anytime
soon. Given the stakes, a deal between the EU and Britain is ultimately likely.
Many proponents of Brexit will at that point claim that Britain is still a
member of the EU in all but name, perhaps a stretch. Many of those who
currently refuse to believe Britain won’t leave, will in any case be proven
wrong. The full force of popular power in one of the world’s oldest democracies
shouldn’t be underestimated